Cree shares are trading lower Thursday morning after Morgan Stanley analyst Joshua Paradise reduced his rating on the LED lighting company to Equal Weight from Overweight.
Paradise contends that the company faces risks from industry-wide overcapacity, low factory utilization rates, and tough macro conditions. And he contends that consensus forecasts for the June 2013 fiscal year appear to be too optimistic.
He sees four key risks to the bull case on Cree:
- Chip sales have dropped 50% over six quarters, and are now less than 10% of the company�s revenues, but remain 25% of fab utilization. He cautions that falling chip prices could be a drag on margins.
- He contends that low utilization rates could delay a move to 150 mm production lines, a shift he says was expected to cut costs next year.
- Tough macro conditions and tight financing.
- Street sees 50% profit growth in FY 2013; he thinks it will be lower at 37%.
CREE is down 95 cents, or 3.7%, to $24.60.
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